Archive for the Money Category

I’ve been back and forth on writing this post for a long time, 5 months in fact. Baked into this story is a fair bit of embarrassment. But in the end, I know that many people out there have been put in similarly compromising positions and this might be helpful.

This is the story of the worst financial disaster of my life. The story starts with me working with an accountant for the first time in my life. I’ve always done my own taxes, but things have gotten very complicated now with owning multiple businesses, a small army of contractors, etc. I earn very little from this website, it’s my other ventures that bring in most of my income.

Tragedy Strikes:

I had submitted everything to my accountant way ahead of time and he had informed me that my taxes for the year would be around $3,000. Not great, but as a self employed person you usually get pretty slammed with taxes. From there I made a lot of decisions about spending, planning and budgeting for the next year. I was feeling really good.

Then I got the bad news in a phone call…. “Ryan I’m so sorry, we made a mistake with your taxes, you don’t owe $3,000, you actually owe, $30,000 in taxes. We made a decimal mistake”

I was at a total loss for words. I was sick to my stomach. I felt hopeless.

I eventually calmed down and started to think. This was a problem, a problem that had a solution. It was a budget that needed to tighten the belt in a way that I had never done before. So I broke out my computer and started a spreadsheet that allowed me to fully understand what I owed and when.

Identifying two important facts:

1. I needed to come up with a lot of cash, which I now had a real world number for

2. I also understood that timing was going to be a huge factor.

The name of the game for me was to earn more income while I timed very precisely spending to meet all my commitments. Certain bills weren’t due for several months and my taxes weren’t due for about two months because I had done them so early. Each time I paid a bill I had to quickly ramp my account back up in a perfect way so that I could be on point for the next bill. This meant that there were times I’d be close to zero, but it would be part of the plan.

The ripple effect… of Death

The real chaos came from the fact that I had some other big bills coming up, having to pay $30k in taxes all of sudden was creating a ripple effect that left unchecked, would spell disaster. A lot of my planning deals with working with cash flow, I don’t get a steady paycheck since I’m self employed. This means I earn money and have to make it last until the next time I get paid. Timing is so critical and a shock to the system of this magnitude was devastating despite me having a solid emergency fund.

The main considerations to my budgeting:

Understand my expenses down to the dollar.

Understand my income, but operate under the worst case scenario

Develop a strategy to increase income, assumed most would fail

Remove costs that weren’t critical, go as lean as possible

Stick to my budget no matter what

The big thing here was understand expenses and income, but operate in the worst case scenario when it came to my income projections. For expenses, I used my real fixed costs and projected variable costs with 6 months past data

I then needed to come with a strategy to earn more income fast. What this meant was I needed to get two big projects I had been casually working on out the door, I had to hustle a second income from somewhere and I had to make this happen quick. This lead me to my first lesson:

Lesson Number One:

I’ve learned that sometimes it comes down to income, not expenditures. This is a particularly tough pill to swallow at times because when we talk about budgeting, debt and savings its often a discussion of what we can cut out. The truth is we can cut out all the fluff, go very lean and still not have enough; that is what happened here for me. What this means is that we need to work on the other side of the equation: income. I realized that was the case with me, cutting lattes would get me no where. I need to earn more to make this equation work.

How I Boosted My Income:

As I mentioned I was able to get two projects out the door, but I didn’t stop there. I operated under the assumption that most of my efforts would fail. With that mindset I knew I needed to move on a lot of ways to earn income to find a success. So from there I looked at my skills and sent some emails to connections offering my services. I was able to land a business coaching gig and a marketing strategy coaching session. I did a few other things, but you get the idea.

Lesson Number Two:

One thing I realized at this point was I’m pretty good at a lot of marketable skills . This brings us to the second lesson: be valuable. Whatever this means for you is the correct answer as long as you can do some thing and people are actually willing to pay you for it. For me I realized I have experience in building businesses and marketing. I can do these things and the outcome of that activity is I can earn other people money. Hence I’m valuable in my own way. Think about how you are valuable, because everyone is, the trick is identifying that talent and who you’ll sell it to.

How My Tiny House Saved Me:

Through out all of this it struck me how different this time in my life would have been if I been in a traditional housing option, namely renting. Right now the average rent in my city is around $1000 a month with utilities. What compounds this fact is that if I had been renting I would have not be able to pay off my student loans earlier so in addition to rent and utilities, I’d also have to content with a $250 student loan payment. This all would add up to me needing to come up with additional $5,000 on top of the $30,000!

Beyond money considerations living in a tiny house meant one thing that was extremely comforting: I would always have a place to live. That comfort of knowing that, let me take a deep breath and know I was going to be okay. To top it off, my utilities are $15 a month with my tiny house and push comes to shove, I could work any job part time and make it if I had to.

Lesson Number Three:

Tiny Houses buy you security, peace of mind and a place to lay your head. More importantly, it let me say “I’ll be fine” and move from trying to survive to finding a solution.

Once I realized that I would always have a place to stay, I could focus on executing my plan. The plan gave me confidence, it let me put aside the knot in my stomach and get down to the work at hand.

Lesson Number Four:

With a budget in place, I found that I could move past fear and act with confidence. Simple things like grocery shopping became empowering experiences because I could buy the food I needed AND it was a positive reinforcement because I knew the money was there for me, that it was part of the plan.

The Results

After all the worry and hard work, it came time to start paying the bills. I think the daunting thing about the entire process was that I knew the entire plan was going to take 4 months to execute. This essentially meant that I was holding my proverbial breath for that entire time. Even though I had a place to live, a budget to rely on, I found it very difficult to keep pushing.

Part of this journey was trying to keep myself above water emotionally. I knew I was on the edge of slipping into depression, teetering there in a very precarious way. I felt a knot in my stomach, knowing that the stress wouldn’t end for months at which I’d either make it out barley or crash horrifically. I carried this with me and it weighed heavily on me.

As I moved through the critical execution phase of my plan I had to trust the plan. In the budget I trust. The plan called for at one point I’d have a whopping $256 in my account for a period of 48 hours; After which a payment would hit and I’d ramp up for the next bill. The whole thing hinged on me hitting things perfectly paying bills and crushing income strategy to face the next big bill.

In the end I was able to earn enough and then some. Along the way I got hit with some unexpected bills and needed to up my game, to keep pushing and never stop. At the end of this I have started to rebuild my rainy day fund, which I hope to expand to $30,000 with enough time.

I’m also cognizant that even though I paid those bills, it’s a double edge sword, I now have to pay taxes on the money that I earned to pay them. A lot of this can be offset with business write offs, but not all.

One of the big questions when it came to tiny houses was “is this just a fad because of the recession of 2008?” Now that we are out of the slump and down the road to recovery we are able to see that it is certainly not a passing trend. If it was because of the recession, we’d see a slump in metrics, but in the past year the traffic on The Tiny Life has doubled, houses are being built at an ever increasing rate, and media attention has been strong.

One thing in the back of my mind during the whole recession is will we learn our lesson? While there lies much blame with banks, lenders and Wall Street, the collective population also played their part. In the end, I don’t think Americans in general have learned much, their actions tell a story that isn’t much different from life leading up to 2008. I think if you’re reading this blog, you’ve woken up from the “American Dream” to find a nightmare; you get that we need to make changes and by living tiny, you’re taking significant steps to that end.

In the past few months I’ve been following a large number of stories pointing to another recession coming sooner than we expected. The most recent I saw was this article. Places like Forbes, Bloomberg, and other big names have spelt out why they think we’ll see a downturn soon. Estimates range from end of 2015 to early 2017. Reasons are varied, but all seem to point to the same thing: recession.

Now I’m not going to claim that there will be a recession sometime soon, obviously at some point there will be another, but I think the message is still the same: we know there will be ups and downs in life, how can we best setup our lives to make the journey smoother and less likely to get ourselves into a bad situation?

With wages stagnating, costs rising, wage gaps ever increasing, wealth concentrating into a scant few bank accounts and our economy being based on an ever increasing capital despite living on a finite planet, something has got to give. We see these forces in play and know that they aren’t sustainable, we know they will catch up to us at some point.

I recently was listening to a podcast where a quote was given that struck me. I have been thinking a lot recently about how predetermined and designed life can be for us unless we wake up and take charge. The quote was:

It’s called the American dream because you

have to be asleep to believe it.

Wake from your slumber!

The scary thing is if we don’t wake up from this slumber of complacency, our lives are influenced to a point that defies common sense. It may be extreme sounding, but to be a cog in the machine, to work long hours only to “buy, buy, buy!” it’s like we are merely an engine which we fuel consumerism. That isn’t to say that to consume, buy or trade is inherently wrong, but to do it with such abandon that the average American has over $15,000 in credit card debt is insane. (source)

Being “awake” is an odd experience when people some call tiny housers crazy for living in a tiny house. If I were to have no debt of any kind and $10 in my pocket, I’d have more wealth than 25% of Americans combined! If I have no debt and $15,000, I’d have a higher net worth than about the bottom third of Americans… combined! (source)

We are told debt is normal, that credit cards are normal, that a home loan and a student loans are a “good investment” and people believe it. I believed it for a time! I have a Master’s degree and after crunching the numbers, it panned out financially, but that is quickly changing for many people. (source) A home loan… no thank you. I have friends who talk about buying a home, with no money down and all I can think of is “I want you to be happy, but I can’t but help question the wisdom of not being able to afford a down payment, but thinking you can afford a house”.

I don’t think it’s my place to say people can’t shop till they drop, have no debt of any kind or they should live in a tiny house. But I struggle when I see people – particularly friends – taking this predetermined path without giving it serious consideration. If someone were to be fully aware of things and still decided to proceed, I’d be okay with that, but blindly following the pattern is scary.

As I’ve grown older, I’ve seen more and more of my friends get into the grind of adulthood and be miserable in their jobs; luckily I think this is the minority of my friends/acquaintances. I’ve had friends comment that they now drink more than they used to because it makes the work week a bit more bearable.

I see consumerism as a troublesome band-aid for many folks who are unhappy with some aspect of their life. Again, I’m not saying no consuming, there are things we need in life, but it shouldn’t be a coping mechanism like it is used today for so many. I was shocked to find out that I know several people who go to the mall and shop 2-3 times a week! I think the city where I live, Charlotte, is on the extreme end of this, because I have 6 large malls within a 30 minute drive of my home; there is even tour bus companies here that bring people to our city just to shop!

To not just complain about it all, below are some things that might help determine your own path.

Consider what your goals are in life, then look at why they are your goals, dig deep.

Write a personal mission statement.

Do the math on what debt really means for you.

Ask yourself “if I could do anything right now, what would it be?”

Identify the reason you cannot do number 4 right now… How can you eliminate that?

Consider how resilient your currently are in your situation. How can you be more resilient?

Identify stressors and potential disrupts, guard against or change to eliminate.

To close I thought I’d share this poem, which I used part of in the title. It’s by Dylan Thomas

Do not go gentle into that good night,Old age should burn and rave at close of day;Rage, rage against the dying of the light.

Though wise men at their end know dark is right,Because their words had forked no lightning theyDo not go gentle into that good night.

Good men, the last wave by, crying how brightTheir frail deeds might have danced in a green bay,Rage, rage against the dying of the light.

Wild men who caught and sang the sun in flight,And learn, too late, they grieved it on its way,Do not go gentle into that good night.

Grave men, near death, who see with blinding sightBlind eyes could blaze like meteors and be gay,Rage, rage against the dying of the light.

And you, my father, there on the sad height,Curse, bless, me now with your fierce tears, I pray.Do not go gentle into that good night.Rage, rage against the dying of the light.

We had planned on having our tiny house chat last Monday, but our guest had a family emergency and we had to postpone to this coming Monday. We are going to be talking about building a business in your tiny house, so that you can leave behind your 9 to 5 and live life on your own terms. We will also be talking about how this is a vehicle for you to follow your passions in life while still earning a living.

We have two amazing guest: Danny Dover and Kacie Erikson

Danny is from Life Listed and has made a living for himself, independent of a location and travels the world while working remotely. He is best know for his journey of pursuing his bucket list. I recently found his TED Talk and I knew we had to get him for this chat!

As of late I have been looking into what it costs me to live the life I lead. I generally don’t spend a lot of money, a lot less than most of my peers, but I still don’t think where I am at with my spending is good enough. Then I went over to Early Retirement Extreme where I reread some of their articles and I was very impressed on how little Jacob lives on…. $8,000 a year!

Come this summer I will have a yearly cost of living of $15,000. Like Jacob, I am single with no kids, which inherently drops my costs significantly. Here is a general summary of my costs:

Cell phone $80

Food (grocery and eating out): $350

Utilities (power, water, gas, internet): $150

Gas:$150

Car (savings): $200

Spending/Entertainment: $200

Insurance (employee portion): $45

Monthly Total: $1175

So obviously I am almost double the cost of Jacob’s spending, but I have elected for some things that he’d label as “luxuries”. Namely a car, eating out and I also have a much more comprehensive insurance package. For the things not included: taxes and car insurance, that is where I get the difference between monthly ($1175 x 12 months = $14,100) and yearly of $15k.

For retirement savings, paying off student loans etc I make a lot more than my costs; so right now I focus on double and triple paying my student loans each month. Once that is gone I will be shifting that focus to building my retirement account.

Part of what ERE points out is if you can drastically minimize your monthly costs, you can retire much earlier than most. It certainly is a balance of living comfortably vs saving so much that you don’t enjoy it, but I think living comfortably is much less than most people think.